Overstock drops Web affiliates in fallout over NY sales tax law

On the heels of Amazon.com suing the State of New York over a new tax law aimed at online retailers, Overstock.com has cut its ties with New York affiliates, saying it will no longer do business with Web site owners in the state who get commissions for referring customers to its site.

"We believe the law is unconstitutional and won't stand the test of the courts, but in the meantime we have been very careful to keep our footprint just in Utah," Jonathan Johnson, Overstock's Senior Vice President for Corporate Affairs told The New York Times. "We can't afford to have our New York affiliates up online if it subjects us to New York sales taxes."

The online giant Amazon.com Inc. has also said the law is unconstitutional and filed a complaint with the Supreme Court of the State of New York. The new law requires e-tailers based outside of New York to collect the state's sales and use taxes and send tax revenues to the state treasury. As part of the state's new budget, the law requires retailers from out-of-state to register as vendors with New York by June 1. Failing to do so could bring civil and criminal penalties.

"New York tax department officials have indicated that out-of-state retailers who refuse to register could face auditing and years of back taxes for any sales made to New York customers," Forbes.com reported.

Overstock's Johnson said the company wants to show the New York governor and legislature that the new law is bad for business and Overstock's 3,400 active and inactive New York affiliates will see their business go away. The state had hoped the new law would bring in $50 million a year.

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For decades, New York and other states have required residents to pay use taxes on purchases made out of state for which no sales tax was collected. The question now is whether the vendors must collect those taxes. At stake is what constitutes a presence in a state.